The Continuing Rise Of The Disney Empire

This entry was posted on December 22, 2016 by Order Office Furniture.

New Zealand born Mark Sweney is media business correspondent at the Guardian, which he joined in March 2006. Previously, Mark worked at Haymarket Publishing for six years, primarily as a news reporter, on Revolution, Campaign and Marketing weekly magazines. In this article published on the Guardian website, he examines how the Walt Disney Empire is heading for its biggest end of year profits yet—a super cool $7bn.

“What do you get if you cross a handful of superheroes with the Death Star and a forgetful fish? Box office gold. Walt Disney Studios is tipped to amass a record $7bn (£5.6bn) in cinemas around the world this year, having already passed $6bn thanks to Doctor Strange, Captain America: Civil Warand, Finding Dory. It expects to set a new all-time high with the upcoming release of animated feature Moana and the all-but-guaranteed Christmas bonanza of Rogue One: A Star Wars Story– which sees the return of Darth Vader.

Disney's long-term strategy

“Industry analysts say Disney’s success is hardly surprising. This is a studio that has systematically bought up great franchises, characters and talent in recent years, and now it is reaping the benefits.

“What is happening at Disney is no accident,” says Guy Bisson, research director at research firm Ampere Analysis, who points to the benefits of the $15bn spending spree that has underpinned its film business. “It is the fruit of a long-term strategy based around strong characters and franchises.”

In 2006, Disney spent $7.4bn on Pixar, the hit factory behind Finding Nemo, its new sequel Finding Dory, Toy Story and The Incredibles. This helped Disney win its struggle to produce modern versions of the blockbuster animated movies on which it built its reputation.

“In 2009 came the riskier $4bn purchase of Marvel Comics’ sprawling superhero universe, comprising 5,000 characters including the X-Men, Iron Man and Captain America, which saw Disney branch out from wholesome family creations such as The Little Mermaid and The Lion King to edgier, more violent fare.

“This was followed by nailing down the world’s most famous sci-fi franchise by buying Lucasfilm, maker of Star Wars, in a $4bn deal that has paved the way for a string of new releases, including Rogue One, a spin-off story about a plot to steal the plans to the Death Star. The deal also included the rights to the Indiana Jones franchise and two highly prized, hi-tech production companies, Industrial Light & Magic and Skywalker Sound.

“They’ve made acquisitions that initially looked really expensive but turned out to be very lucrative,” says Brian Wieser, analyst at Pivotal Research. “They’ve managed them well, kept creative leadership in place, and they keep making amazing properties.”

“Disney films have enjoyed a stellar year, with four blockbusters to date: Captain America, Zootopia and Finding Dory made more than $1bn each and The Jungle Book made $966m. But its film arm accounted for only 18% of the company’s total $42.5bn revenues in the nine months to the end of July; the rest of the business is not performing so well. Shares in the Walt Disney Company have fallen 16% over the past year and the company’s fourth-quarter results undershot expectations last week.”

Investors’ concerns are focused on ESPN, Disney’s sports cable network and the company’s biggest profit driver, which is struggling as consumers ditch expensive pay-TV packages and switch to cheaper services.

It's all in the franchise

Disney’s broad character franchises – like Mickey Mouse and Jack Sparrow of Pirates of the Caribbean fame – are exploited across its theme parks and resorts business, which accounts for 30% of revenues, and its merchandise and licensing unit, which accounts for a further 10%.

Disney is currently constructing a “Star Wars land” at its flagship US theme parks in Orlando and Anaheim, which will include a ride where visitors take control of the Millennium Falcon, and dining options featuring a take on the famous Mos Eisley cantina from the original 1977 film.

And in just the first year following the premiere of 2015’s Star Wars: The Force Awakens, merchandise sales are predicted to hit $5bn, with Disney reportedly taking about 10%. Another Disney blockbuster, Frozen, is reportedly the biggest merchandise money spinner of all time, with sales of more than $107bn.

“The parts of the business interact strongly,” says Bisson. “The big character franchises – superheroes, Star Wars, children’s output – all are so dependent on the whole stream from theme parks and resorts.”

The global appeal of Disney’s character franchises also plays well in the increasingly important international movie market – which has been driven by a boom in Asian countries such as China and Indonesia, where much Hollywood fare has traditionally not performed well – as well as the rise of markets in Latin America and eastern Europe. In 2015, 61% of Disney’s total $5.88bn global box office take came from outside the US.

“The major studios are moving to fewer, but bigger and bigger, films to drive the box office,” says David Hancock, the head of film and cinema at analysts IHS Technology. “And it is working. Part of the key to this is now the wider picture: the international market is so much bigger than just appealing in the US.”

Disney is also aware that the Marvel and Lucasfilm acquisitions have helped it pull in large numbers of millennials: exactly the demographic film-makers and TV companies are most concerned about losing as they threaten to abandon traditional media.

And Disney isn't about to stop there

“Remember, Disney is rumoured to be looking at a potential acquisition of Netflix,” says Bisson. “An international over-the-top [streaming on-demand] business that would fit into its channels business is hugely attractive. Disney already has an exclusive film deal with Netflix in the US.” The only barrier to Disney hitting the magic $7bn box office total is whether Rogue One proves to be a winner with die-hard Star Wars fans this Christmas.

“In August, Bob Iger, chief executive of the Walt Disney Company, said that the level of fan enthusiasm for Rogue One was “roughly on par” with what had been seen at the same point in last year’s marketing campaign for The Force Awakens. That film clocked up more than $2bn from cinema goers, with $1.33bn of that banked as box office takings in the 2015 calendar year. Disney will be hoping that its force will be strong enough to net the $1bn-plus it needs to make history this year.”